[Invest&Law] The 'Action' That Became a Variable in Chaebol Family Management Disputes

Published 28 Feb.2024 12:00(KST)

Expectations for 'Catfish' to Change Governance of Leading Companies like Hanmi Pharm and Lotte Aluminium

As activist funds flood shareholder proposals aimed at expanding shareholder value, the market is expressing both anticipation and concern simultaneously. There is an expectation that activist funds will act as a 'catalyst' for companies that have long resisted changes in governance.

On the other hand, there are worries that interference in management without a thorough understanding of the company's internal affairs could sow seeds of conflict and lead to side effects that stifle corporate activities.

On March 26, 2021, shareholders are attending the '44th Kumho Petrochemical Annual General Meeting of Shareholders' held at Kumho Petrochemical in Jung-gu, Seoul. Photo by Jinhyung Kang aymsdream@

◆ Activist Funds' Offensive Stands Out During the Shareholders' Meeting Season = Samsung C&T, faced with shareholder proposals from five activist funds, disclosed on the 15th that "the total shareholder return amount proposed is 1.2364 trillion KRW, exceeding 100% of the company's free cash flow (excluding Biologics) for 2023 and 2024." The company expressed concern, stating, "This amount greatly exceeds the third-phase shareholder return policy we carefully established considering internal and external management environments, and represents a significant managerial burden." Accordingly, Samsung C&T has begun the process of obtaining proxy votes from shareholders.

Ahead of Kumho Petrochemical's shareholders' meeting, former executive Park Cheol-wan and the activist fund Cha Partners Asset Management joined forces. Park, the nephew of Kumho Petrochemical Chairman Park Chan-gu, is the largest individual shareholder. On the 15th, Park submitted shareholder proposals demanding 'share buyback cancellation' and the 'appointment of outside directors serving on the audit committee,' delegating his rights to Cha Partners Asset Management. Although Park holds a 9.10% stake in Kumho Petrochemical, he has not participated in management.

On the 16th, Truston Asset Management announced via disclosure that it would propose director candidates as shareholder proposals to Taekwang Industrial. Truston stated, "We hope the proposed candidates will participate in the board to contribute to improving the company's business conditions and promote board-centered management."

◆ A Variable in Chaebol Family Management Disputes = There is also room for activist funds to intervene in power struggles over management rights within chaebol families. Activist funds could act as a variable in the vote battles between controlling shareholders and the founding families at shareholders' meetings.

In the integration decision process of Hanmi Pharm and OCI Group, promoted by the activist fund La D?fense, eldest son Lim Jong-yoon, President of Hanmi Pharm, and second son Lim Jong-hoon, CEO of Hanmi Precision Chemical, who were excluded, proposed the appointment of six new directors aiming to participate in management.

At Lotte Aluminum, former Vice Chairman of Japan's Lotte Holdings, Shin Dong-joo, submitted a shareholder proposal requesting the submission of an amendment to the articles of incorporation, including 'proportional shareholder benefits.' He is the elder brother of Lotte Group Chairman Shin Dong-bin and was one of the parties in the 2015 Lotte Group management dispute.

Lotte Aluminum plans to submit a proposal for approval of a spin-off plan transferring the next-generation business of anode foil to a new corporation at next month's shareholders' meeting. To prevent this physical division, former Vice Chairman Shin proposed a shareholder proposal regarding the amendment of the articles of incorporation, citing concerns about dilution of existing shareholders' value and corporate value.

An industry insider from the securities sector analyzed, "Shareholder proposals by activist funds clearly play a positive role in redirecting corporate management toward shareholder-friendly directions." Conversely, another insider pointed out, "When there is a significant difference in shareholding ratios with major shareholders, the effect of proposals is minimal and may cause management confusion."